BSNL disallows sub-contracting

$5 bn GSM line tender to have Indian quota.

Telecom vendors bagging orders for Bharat Sanchar Nigam Ltd's 60-million GSM lines project may not be allowed to sub-contract to others. But they may be allowed to outsource from public-sector equipment manufacturers.

The tender, which is expected to be issued next month, is the world's largest ever for GSM lines. The value of the order is estimated at $5 billion.

The tender would possibly contain a clause stipulating that 25 per cent of equipment requirements would be reserved for Indian PSUs, if they participated in the tendering process, BSNL executives told Business Standard. Contract winners will have to supply equipment at the L1 (lowest) price quoted during the tendering process.

Indian Telephone Industries Ltd (ITI) is the only Indian PSU which is in the business of manufacturing GSM equipment. It is possible that the company, which has a tie-up with French telecom major Alcatel at its Mankapur and Rae Bareli facilities in Uttar Pradesh, can bag a contract for 15 million lines by just participating in the tender.

Congress President and UPA Chairperson Sonia Gandhi, elected to Parliament from Rae Bareli, is inaugurating ITI-Alcatel's second GSM equipment manufacturing plant on Wednesday. In July this year, she inaugurated a similar facility in Mankapur which will have the capacity to produce 4,000 base stations.

ITI has said that it will enhance the capacity if it receives assured orders from BSNL and Mahanagar Telephone Nigam Ltd.

In June this year, MTNL withdrew a tender for the supply of equipment for 4 million lines as the tender did not provide for reserving 30 per cent of the order for ITI, company executives said.

A restriction on sub-contracting to foreign players is expected to affect giants like Nortel, Motorola and Lucent, which outsource a considerable chunk of their GSM equipment. The companies, however, propose to set up manufacturing plants in India to comply with the eligibility criteria.

The BSNL board has already decided to make it mandatory for "vendors bidding for the tenders to manufacture equipment directly or through tie-ups with manufacturers in India".

Company executives said the local manufacturing clause would help India's largest telecom service provider meet its rollout targets. In the past, suppliers had cited third-party delays as a reason for not meeting deadlines.

"This clause has been added to ensure quality, timeliness of delivery and after-sales service. We are also envisaging a value addition of 30 per cent from the second year onwards," said a BSNL executive.

Last month, the BSNL board had scrapped plans for two separate tenders "" the first of which was to be in 2005 for 40 million lines, to be followed by a subsequent tender for an additional 20 million lines in mid-2007 "" and had decided to issue a single tender for 60 million GSM lines.

ORDER, ORDER

A restriction on sub-contracting to foreign players is expected to affect giants like Nortel, Motorola and Lucent, which outsource a considerable chunk of their GSM equipment

Indian Telephone Industries can bag a contract for 15 million lines by just participating in the tender as it is the only Indian PSU in the business of manufacturing GSM equipment

The local manufacturing clause would help the largest domestic telecom service provider meet its rollout targets